Section 9.3: Buying and Selling Stocks

Personal Finance Chapter 9 SECTION 9.3: BUYING AND SELLING STOCKS

THE MARKETS

 Investors purchase new securities from a corporation through an investment bank or another representative of the corporation.  A corporation can get financing by selling directly to stockholders.

IPO:

(Initial Public Offering) – occurs when a company sells stock to the public for the first time.

 Considered high-risk

THE SECONDARY MARKET:

 A market for existing financial securities currently traded among investors.

SECURITIES EXCHANGE:

 A marketplace where brokers representing investors meet to buy and sell securities.  New York Stock Exchange (NYSE) – 3,000+ corporations; Total Market Value of $16 trillion+; companies with very large capitalization and trade many shares.  American Stock Exchange (AMEX) – companies that can’t meet NYSE requirements.

OVER-THE-COUNTER (OTC) MARKET:

 Network of dealers who buy and sell stocks of corporations that aren’t listed on a securities exchange. o Traded through NASDAQ – an electronic marketplace.

Brokerage firm Portfolio Account Executive/stockbroker

MARKET ORDER:

 A request to buy or sell a stock at the current market value.

Personal Finance Chapter 9 LIMIT ORDER:

 A request to buy or sell a stock at a specified price.

STOP ORDER:

 Used for selling stock; type of limit order to sell a particular stock at the next available opportunity when the market price reaches a specified amount.

Computer Transactions

LONG TERM INVESTMENTS: held 10 years or longer.

 BUY AND HOLD: o Buy stock and hold for a number of years (10+).

 DOLLAR COST AVERAGINGS o You buy an equal dollar amount of the same stock at equal intervals.

 DIRECT INVESTMENTS & DIVIDEND REINVESTMENT PLANS o Buy stock without going through your account executive at a brokerage firm and paying commissions.

SHORT TERM INVESTMENTS: held a year or less.

 BUYING ON MARGIN o An investor borrows through a brokerage firm part of the money needed to purchase a stock. o Up to ½ of purchase price as long as there is at least $2000 in brokerage account.  SELLING SHORT o Selling a stock that has been borrowed from a brokerage firm and that must be replaced later. To make money you have to predict correctly that the value of the stock will go down.